Good morning, and welcome to the second quarter 2024 Gentera's conference call. Now, I would like to turn the call over to Mr. Enrique Barrera, Investor Relations Officer of the company. Sir, you may begin.
Thank you. Good day to all. Thank you all for joining us and for your continued interest in Gentera. I'm Enrique Barrera, the company's Investor Relations Officer. I'm very pleased to introduce our management team. With us today are Mr. Enrique Majós, Gentera's Chief Executive Officer; Mr. Patricio Diez de Bonilla, Banco Compartamos Chief Executive Officer; and Mr. Mario Langarica, Gentera's Chief Financial Officer. Enrique Majós and Mario Langarica will present Gentera's results for the second quarter 2024, as per the report that was issued yesterday. Patricio Diez de Bonilla, along with Enrique and Mario, will actively participate in the Q&A session of this conference call. Please note that during this presentation, Gentera may make forward-looking statements. These do not account for future economic circumstances, industry conditions, company performance, or financial results.
Additional information on forward-looking statements can be found in the disclaimer located in our earnings release. If you did not receive a copy of the release or you have any questions, please do not hesitate to contact our investor relations department in Mexico City. If you are a member of the media, we ask you to contact us directly. I would now like to turn the call over to Mr. Enrique Majós for his presentation. Enrique, please go ahead.
Thank you. Good morning, Enrique, and good morning to everyone, and welcome to our second quarter report. We are always happy, and we appreciate your interest in Gentera. Let me start by saying that we are closing a solid first semester. As you have seen through the last couple of years, we come from several quarters reporting growth and a portfolio with good quality. In the recent quarters, we have also reported record figures in terms of clients and portfolio growth, and this quarter will not be the exception. As part of the results of each of our subsidiaries, we are also reporting that we are lagging behind in our growth estimates for Compartamos Financiera in Peru. However, this is something that the team is taking care of, and Mario and Patricio will provide more specific information about it.
Bottom line, we are confident that we will deliver within the guidance we provided to you for the present year. Let me summarize for you a list of six main lines regarding our business results. The first line, clients and end users. In terms of our clients and end users, we grew 18.4% in a yearly basis, reaching a record figure of 5.39 million people. This is remarkable figure, since it means that in the last twelve months, we grew 830,000 net clients, which is another historic figure. Second line, portfolio. Gentera's total portfolio grew 19.3%, which is right on target if we compare it with our guidance. As you remember, our guidance is to grow between 18% and 20% our portfolio.
With this growth, we closed this quarter reaching a historic portfolio of MXN 68.8 billion. Third, quality of our portfolio. The quality of our global portfolio remains with NPLs at 3.23%. This is not only a better figure than the 3.57% that we reported in our previous call, but also remains at the same level we had one year ago, which was already outstanding. As you remember, 3.5%-4% is our reference to define a high-quality portfolio. On the other hand, cost of risk closed at 12.1%, which is slightly above the 11.5% that we guided for this year. This is mainly because our risk levels in Peru. However, two considerations on this.
The first one, we feel confident that this cost will be compensated with better interest income, better insurance fees, and a good expense control. The second consideration, once we normalize our risk levels in Peru, we would like to return in 2025 to a target cost of risk between 11.5% and 12%. Additionally, Mario Langarica will make further comments on our provisions in Peru. The fourth line, expenses. As I already mentioned, expense control has been very well executed. Expenses annual growth has been 13%. As we have pointed out since last year, our jaws will remain positive for this and the following years. Fifth, net income. Accumulated net income grew 13.4%, with the same within the same period or compared with the same period of last year.
Due to natural seasonality in our business, second semester is usually stronger than the first one. Therefore, we feel comfortable that we are on track to deliver results as we defined them in our guidance. And sixth line, ROE. For the first semester, ROE reached 19.6%, which places us on track to reach an ROE over 20% by the end of the year, as we have anticipated to you before. In addition to these slides, let me say that we continue working on our digital transformation initiative. Several of them are already contributing to our business results, and some others are in the process to be deployed to provide our customers a more convenient experience, and to enable us to have a more efficient business operation. Let me close my remarks by saying that we expect a promising second half of the year.
Our customers will continue to receive our products and services with a high-quality experience. At the same time, we will continue reaching the growth, the quality, and the efficiencies that we have defined for Gentera this year and towards its future. Now, Mario Langarica will provide the financial highlights for this quarter, and after him, Patricio Diez de Bonilla will join us in our traditional Q&A session.
Thank you, Enrique, and good day to everyone. As always, we appreciate your interest in Gentera. As Enrique signaled in his remarks, we're very excited with the solid results that Gentera has achieved in the first semester of 2024. We're confident about the solid dynamics that we expect for the second half of the year. We want to keep emphasizing the success of the decision we took early in 2023, to increase our sales force and to upgrade our infrastructure to capture the market opportunity that we saw, that resulted in relevant growth in clients, in our portfolio and in our business. These actions allowed us to reach a record of 5.4 million clients using our financial services and breaking another record in our loan portfolio, achieving deeper financial inclusion.
As mentioned by Enrique, in 2Q 2024, Gentera's loan portfolio amounted to MXN 68.8 billion, growing 19.3% compared to 2Q 2023, in line with our guidance for the year. The results reached in the first half of the year are a very solid foundation to keep growing as planned. It is important to note that the growth in our Mexican subsidiaries has more than compensated a slowdown of our portfolio growth in Peru. A challenging economic context in Peru in first half of 2024 generated higher than expected NPLs and cost of risk, and as always, we took both actions to prioritize quality of the portfolio versus growth.
Having said this, we are already seeing good trends that are allowing us to restore healthy growth, expecting to finalize the year as one with, in Peru, with one of the strongest institutions in the country in terms of capitalization, liquidity, coverage ratios, and profitability. Now, let me jump to talk about the evolution of the different lines of our income statement. As anticipated in previous calls, the growth in our interest incomes and our margins has materialized following the growth in clients and in our portfolio. Interest income grew 24% versus 2Q 2023, reaching MXN 9.6 billion. Net interest income grew 19.4% to amount MXN 7.8 billion. Consequently, NIM amounted to 39.6% this quarter, and in the semester, in line with our expectations for the year.
As of first half of 2024, Gentera's cost of risk, as Enrique explained, amounted to 12.1%, and for 2Q , to 13.6%, which is higher than our expected level for the year. This is mostly explained by the higher-than-expected risk in our loan portfolio in Peru, as explained before, a larger individual lending role that requires higher provisions in the mix, and three, incremental early NPL. We have addressed these issues, and we expect to see better dynamics in the following quarters. Now, on a quarter-to-quarter basis, we observed a normalization in reserve creation at Banco Compartamos, after having excess reserves from Hurricane Otis in 1 Q 2024, as explained in previous quarters. So for Gentera, for the end of the year, we expect to maintain a cost of risk of around 12%.
This marginal increase in our original projections of cost of risk will be more than compensated by higher interest income, higher fees, and better expense control, as explained by Enrique before. Provisions for loan losses for Q2 2024 amounted to MXN 2.28 billion. We expect that reserves in the next two quarters will be around MXN 2.2 billion and stabilizing forward. And our coverage ratio for the period stood at 249.8%. NIM after provisions in Q2 amounted to 28% and 29.2% for the full semester. For the year, we maintain our expectations to keep NIM after provisions around 30%.
Net fees have shown a better-than-expected growth of 70% compared to 2 Q 2023, to amount MXN 1.01 billion, and this is mostly related to our insurance business that has been very successful. Insurance business represents around 90% of the commissions and fee income generated in Gentera. For the semester, net fees amounted to MXN 1.89 billion, representing a 46% growth compared to last year. It is also important to remember the incremental contribution of Yastás and Banco Compartamos branches to depend less on third-party channels, reducing fee expenses in relative terms. Operational expenses for 2 Q amounted to MXN 4.7 billion, representing a 12.7% growth compared to 2Q 2023. Most of this growth comes from our larger sales force and upgraded infrastructure.
As explained before, other relevant components of the expense line are the strategic initiatives and investments, investments that we have been developing and implementing to make our operation more productive, efficient, and modern. As mentioned in our previous calls, the positive effects of these efforts is already flowing to our revenues and expense lines, generating, again, a virtuous trend of positive jaws that we plan to keep forward. As you can see, expense growth has been lower than our original expected guidance for the year. Therefore, net income amounted to MXN 1.229 billion in 2 Q 2024, with a cumulative net income in the first semester amounting to MXN 2.8 billion, making it our best semester ever.
Gentera's controlling participation of net income in 2 Q 2024 amounted to MXN 1.185 billion, representing an EPS of 0.75 MXN for the quarter, 10.6% increase compared to 2 Q 2023. Gentera's controlling ROE for the semester reached 19.6%, with Banco Compartamos posting an ROE of 31.6%. As explained before, the incremental cost of risk will be compensated by stronger revenues and better expectations-expense control. First half 2024 results give us confidence to maintain Gentera's loan portfolio and NPLs guidance, expecting controlling ROE to move around 20.5%. All of this maintaining solid and healthy liquidity levels, strong and diverse access to funding sources, and robust capitalization levels. That is all for my remarks.
Thank you all for your attention, and now we can move to the Q&A session.
Thank you. Ladies and gentlemen, to ask a question, please press star one on your telephone keypad at this time. If you are using a speakerphone, please make sure that your mute function is turned off to allow the signals to reach our equipment. The first question comes from the line of Ernesto Gabilondo with Bank of America. Please go ahead. Mr. Gabilondo, please go ahead with your question. Mr. Gabilondo, please go ahead with your question. Since there is no reply from the end of Mr. Gabilondo, we'll promote the next participant. That is Tito Labarta with Goldman Sachs. Please go ahead.
Hi, good morning, everyone. Thank you for the call and taking my questions. Just to understand a little bit better, the provisioning for the quarter. I mean, you mentioned the early NPLs picked up a little bit, also the strong increase in individual lending. Can you quantify, you know, one, how much are you seeing early NPLs increase? Is that in both Peru and Mexico? And could that be an indication, even though asset quality metrics total NPLs improved in the quarter, is this an initial sign that NPLs are going to get worse in the future?
In other words, is that a leading indicator? And then thinking about the growth, do you expect individual lending to, you know, continue to grow at such a strong pace? Could that mean that provisioning is gonna have to remain elevated for some time? Just to help us think about, you know, your cost of risk from here and how it should evolve. Thank you.
Let me jump to the market dynamics, Tito. This is Patricio. A little bit of what we've seen in Mexico. As you remember, in Mexico, we've grown very fast in both products, not only individual, but also the group lending methodologies. We have attracted historic high growth in new customers, and new customers tend to be higher risk. A s you remember in the past, after fast growth periods, NPLs normally pick up, and then we control back again this, this trend and move from another standpoint. So what you should expect is that, for group lending, normalization of NPLs should happen in the second half of the year.
For the individual lending, which is the higher risk profile product than group lending, what you should observe is, of course, we will continue to grow fast in this portfolio, and as it gains share in the mix of the portfolio for the bank, it will put pressure in the provisioning level. Not so, we are not considering it as a bad quality for this specific product, so we will continue the growth momentum. And that's me on the Mexico standpoint.
For the Peruvian market, what we are seeing is, yes, the context is very complex still, but we've taken actions, and we are seeing, for the Peruvian NPLs, better trends in the early stages, in the early vintages for this operation. So you should expect for Peru, that NPLs would trend downwards towards the end of the year. Having said that, provisioning should, yes, be above the cost of risk that we guided, but it should stabilize back in the range for the coming year. So, Mario?
Yeah. Yeah, no, Patricio has already explained most of it. So, I would say that, NPLs, we should expect levels around 3.5%-3.7%, by the end of the year. The bank and ConCrédito, they will be stable. We have observed very stable NPLs, and we expect to continue that. The pickup was, as explained before, by Peru, but by the end of the year, we expect NPLs around 3.6%. Now, on cost of risk, we expect that also, the cost of risk levels of the bank and ConCrédito will be stable, maybe even a little better. That already considers the expected growth in individual lending.
I mean, individual lending has been going very strong, but that was already considered in expectations. So, the growth in provisions in the quarter came for two reasons, mostly. The Peru situation, and also this pickup at the bank that happened to do with the excess reserves that we created by the end of last year for Hurricane Otis, that made a reserve creation in the first quarter of the year for the bank lower. And now, it's just normalizing, but we don't see anything that is worrying us.
As I mentioned in my remarks, for the next two quarters, we expect that the level of provisions will be slightly below this quarter, somewhere around MXN 2.15 billion-MXN 2.25 billion and will be stable. As Enrique mentioned in his remarks, for 2025 and going forward, we want to bring back cost of risk again to levels between 11.5% and 12%.
Okay, no, that's clear, Patricio and Mario. So it sounds like you're not necessarily concerned about asset quality in Mexico. It's really more a function of mix, maybe a little bit of a concern in Peru, but that seems some maybe getting past the worst of it. And then maybe just one other follow-up. In order to deliver on your EPS guidance for the year, yeah, I think cost of risk may be a bit above the guidance, but it sounds like expenses, it could be modestly below. And I think that's, as you grow individual lending requires a bit less in expenses and also fee income going strong, right? So that's sort of the dynamic to deliver on the EPS is higher cost of risk, but maybe better expenses and better fees.
Exactly. Just as you said it, that's what we expect for the year. Again, the growth in individual lending was already in our plans and will be in our plans going forward, because it's a very important new component of income.
Okay, very clear. Thank you, guys.
Thank you. Next question comes from the line of Olavo Arthuzo with UBS. Please go ahead.
Yes. Hi, guys. Good morning, everybody, and thank you for taking my question. Actually, I would like to focus on the Peru operations, because besides the effect on the provision charge hike on this quarter, we also noted a decrease on the NII, the financial margin, of the bank, in Peru. So I just wanted to understand a little bit more on what drove the decrease on the NII. And also, we saw that the ROE of the operations, like, reached 1% on this quarter. So I just wanted to understand the set of drivers, the provisions, the NII, the Peru operations. What could we expect for the ROE of this year, in Peru? Thank you, guys.
Okay, let me talk on a little bit about the Peruvian operation. As you remember, I mean, in the context of the Peruvian market, it kind of complicated. As you have seen last quarters, the economy is still lagging behind, and it's not growing very fast. That has put some pressure in most of the microfinance industry throughout the country, not only financieras, but banks and cajas mostly. With that, in that context, we've been able to be more stringent in our credit origination processes. We have reduced the amount, the balances that we lent to the customers, we have increased our collection agents in order to protect the delinquency loans, and we have been focusing retaining our employees in order to have experienced personnel to weather this process.
Those actions have been putting pressure in the costs for the company. However, as you can see, we are still making profits. We are profitable, as Mario said, one of the most profitable institutions in this context in Peru, but of course, have put pressure in the margins for the business. Going forward, what you should expect is we can expand the active rate in the market. So some benefit you should expect for lower volumes, but a higher price point, that could offset the lower volumes in order to be able to reach good profitability by the year-end as NPLs trend downwards.
Yes, and just to complement, again, we expect ROE to recover, it was, probably in soles, it will be around 13%, and in pesos, around 15%. No, sorry, the opposite, 15% in soles and 13% in pesos. And again, it's very important to remember that our objective, and that will be probably in medium term, probably it will take us a year or so, it's to bring Peru back to ROEs above 20%. So we're working on that, and Patricio explained very well the slowdown that we had in the first half of the year.
Okay, very clear. Thank you, guys.
Thank you. Next question comes from the line of Ernesto Gabilondo with Bank of America. Please go ahead.
Thank you. Hi, good morning, Enrique, Patricio, and Mario. Thanks for the opportunity to ask questions. My first question will be a follow-up on your cost of risk. So, you were also saying that the cost of risk should be coming back to 11.5%-12% next year. So, just wondering, what will be the reasons behind to return to those levels? And what will be the level of loan growth that you will be expecting for next year? Then my second question will be on your effective tax rate. We noticed it came around 32% in the first half. So should we expect that level to continue, or it should be normalizing to 30% for the full year?
And my last question will be on the fintech competition on the lending side. What do you expect segments D and E of the population to be able to be served by smartphones or technology? Any concerns for new entrants, such as Mercado Pago or eventually Spin, in that segment? And on the other hand, on the funding side, is it true that Gentera has been able to attract cheaper funding costs in the market than of what you are seeing on other fintechs remunerating deposits at a higher rate? Thank you.
Ernesto, I will jump to two of your questions. Let me, let me talk about growth, which was the first question that you asked us. In terms of growth, as you see, and this is both relevant for Mexico and Peru, the market is still very large and still underserved in most parts of the country. So the addressable market is still in the millions of people that need formal access to credit, so there's a huge market, both in Mexico and Peru. And as I've said before, the competitive landscape for most of our competitors in both countries actually have weakened a lot, no? I was talking about Peru and how competitors have been facing difficulties lately, but this is something that it's still the case in Mexico.
So it's a large market for both group lending and individual, with weaker competitive landscape. So we see an opportunity to for the coming year to keep on growing at the double digit range for 2025. So having said that, I'm heading towards your second question, which was the fintech. Of course, there are many new entrants, Nu, Spin, and some others that are entering into the market and facilitating the access for payment capacities as well as credit. Again, most of these offers have to do with digitally native or digitally enabled customers, which is, they are a little bit above our target market, but certainly there's some overlap.
We need to not only see what they are doing, but continue with our digital transformation within Compartamos Financiera, ConCrédito, and Banco Compartamos. As you've seen, Banco Compartamos, we've been moving our operation into the digital world, not only for the back office, but also having different products and services put in front of our customers by our mobile apps. In the short term, this segment, as any other, should have in their mobile phones digitally enabled products to interact with the banking system. Yeah, and regarding the stabilization of cost of risk, the drivers are maintain very good cost of risk in Mexico, as we have been observing for several quarters and keep going forward.
Second, improve cost of risk in Peru, which will be the most important component. On tax rates, well, as we have talked about this in other calls, the corporate rate in Mexico is 30%, and every month we pay 30% of the fiscal income that results from the operational dynamics of calculating taxes. So we always say that the normal amount to put in all the projections is always 30%. This year, you know, this quarter, we have had a little pickup, but remember that in other quarters, we have been around 28%. So the normal tax rate that we should always consider is 30% corporate tax rate.
In terms of your question about funding, well, we have, as you know, a very healthy funding cost in Mexico, around 10%, and in Peru, around 6.8%. And yes, these fintechs are funding mostly the ones that have been more active with a more expensive funding sources such as term deposits. And excluding the cost of funding, what is more important is the access to funding. And as you know, we have a lot of different funding sources, and relying only on paying a high rate on deposits may be risky. So that's why it's for us, so important to have many, many funding sources available with many, many different providers. And to highlight-
Thank you very much. Yes. Yes, sorry.
Then you were talking about also about Peru and what we've done, and I mentioned that in my previous answer. But we are confident that as we move along in the coming quarters, the actions that we've taken to make more strict the origination processes, to reduce the balances per customer, the increase in our collection department, and the benefit that we have now to reprice the products at a higher price point can allow us to regain back again the over 20% ROE that Mario mentioned for the coming year. So those actions are already deployed, and we are executing them as we speak.
So, this is why we're confident that NPLs should continue to trend downwards in the Peruvian operation for the coming months, and this will allow us to go back again to the 20 level for ROE in the coming year.
Perfect. Now, thank you very much, Patricio and Mario.
Thank you. Next question comes from the line of Eric Ito with Bradesco BBI. Please go ahead.
Hi, guys. Good morning. Thanks for the opportunity of asking questions. I have two questions here as well, mainly focused on Banco Compartamos. Apparently, this quarter made it clear for us that maybe the individual methodology loans require more provisions compared to the group lending. So first one, if you could quantify the difference between the NIM after provisions between the individual and group lending in the Banco Compartamos. But I guess, as you mentioned, maybe the individual loans, individual methodology loans could have a lower NIM after the provisions, but then should be compensated with maybe more fees and operating expenses.
So that's basically my second question: How much can we expect for the efficiency ratio for the year-end? I don't know, I don't know if you guys changed the expectations for this year regarding fee income and operating expenses for 2024. So just an update on that. Thank you.
Right, thank you, Eric. And let me go to the economics of the individual lending. This product, it's a product, it's a more efficient product in the sense that, once you originate the loan, you don't require such as an intense monitoring as it happens in the group lending methodology. So the cost of servicing this loan, it's much lower than it is in the group lending methodologies. On top of that, we lend up to 500,000 MXN, close to $30,000 at 4 years.
So it's a different type of portfolio. With also a smaller price tag, right? We can lend at, I don't know, 30% active rate to the year, and, and that should make us as profitable as we are more efficient on the monitoring side, despite the fact that we have lower needs for higher volumes. In terms of efficiency ratio, we expect to close the year with a level of around 69%.
Perfect. Thank you.
Thank you. Next question comes from the line of Carlos Gómez with HSBC. Please go ahead.
Hello, good morning. My question is about capital. You have been growing very strongly in Mexico, over 25%. And although your capital, tangible equity to assets, has been stable, your tangible equity to loans has been declining. Can you remind us what your target capital levels are? And does this mean that you might want to rethink your 40% payout for coming years?
Yeah, thank you, Carlos. Well, we, as you know, we have different capital indexes per subsidiary and for the group. So as you know, our internal minimum ECAP level for the bank is 25%. Our internal limit for the solvency index in Peru is 17%. And we also have an internal equivalent ECAP level for ConCrédito, which also we want to keep above 35%. All of them are above those levels. And tangible equity is this, if you want, soft limit that we follow, and there our objective is to keep it around 22.5%. Now, mostly affected by the dividend payment, it's a little bit below, but again, in the following quarters, it will keep growing with the creation of new capital.
Okay. Thank you very much.
Thank you. Our next question comes from the line of Brian Flores with Citibank. Please go ahead.
Hi, team. Good morning. Thank you for the opportunity. I was wondering, there was an interview with Patricio on this week that was published, very interesting. He mentions a lot of the offerings that you're including, and the technology helping you on collections. Wanted to ask you a bit more details, if it's possible. Like, what technology enhancements have you done with your sales force, with the collection teams? If you could elaborate a bit more, I think this is a very interesting topic and something that we have heard more and more from investors, particularly now, that as Ernesto was mentioning, we have seen more technology deployments in Mexico from fintechs and other companies. Thank you.
Thank you. This is part of our digital transformation that it's taking place in Mexico. The first stage of this transformation had to do with our internal credit and origination processes, right? So how we disburse loans, how we monitor them, and how we renew the loans using technology, is key because we are trying to streamline this process while we make a more efficient, faster, simpler process for the customer, as well as for the loan officer. That should boost, one, customer satisfaction, as you can give the loan very fast to the end user. And secondly, you can be more proactive given the fact that group meetings or origination processes should be faster and less paper should be used in this process.
So that's the first stage that we are working on, and we will deploy later this year. The second stage, it's how we interact with the customers using digital tools. Today, we have our mobile app, where our customers can not only their payments, check their balances, but we are trying to create an offer in which they have different products and services, such as insurance and some others, that they can start dealing with Compartamos by themselves, using their the technologies that are already present.
So once you have fully deployed the back office with the customer experience digitally, we think that we can now make much progress or more progress, using not only the credit information about our customer base, but also using the transactional information about our customers to make a better predictions and develop better products faster and more efficient for the end user to boost their customer satisfaction and increase the portfolio. So this is something that is taking place as we speak. It's something that we are also deploying in Peru, and with very good results. And it's, I would say, the stepping stone or the foundation for the digital transformation for the group going forward.
Thank you. If I may follow up, just very quickly, at the end of this journey or as this journey progresses, should we see less interaction from loan officers in a physical way, and then maybe bring down costs? Or do you think physical interactions are still at the core of your collection strategy?
It will not be black or white. We won't move from 100% physical to 100% digital. Certain interaction with the loan officers should remain in order to understand the customer needs, to have a certain relationship, but we want to make it more productive, our sales reps, using this technology. And, of course, that will have a cost benefit, given the fact that you don't need as many loan officers while you grow the portfolio of customers as well as loans. But at the end of the day, certain interaction should be required, but certainly we can still improve in our efficiency metrics or productivity metrics for loan officers going forward.
Super clear and helpful. Thank you.
Thank you. Next question comes from the line of Yuri Fernandes with JP Morgan. Please go ahead.
Hi, Mario, Patricio, Enrique, thank you for the opportunity of asking questions. I have one on fees. You know, again, very strong, again, insurance. What should we expect for this line? And regarding the mix of individual lending versus group lending, is this better for insurance? Like, is this better for you to sell policies and, you know, make more money on fees? Just trying to think about the full economics, because maybe your risk-adjusted margins on individual lending is lower, but maybe you can make more money on fees, not only on the cost side, as you already said. So that's my first one, and then I'll ask a second question. Thank you.
Thank you, Yuri. I will tell you about the fee. What you've seen, the fast growth in the fee income, it has to do with the acceptance of the insurance product that has been growing very, very fast. As you remember, we, in the past, had only one product to our customers. It was life insurance, but we, once our customers realized, after the pandemic, the benefits of being life insured, the reality is that we started to diversify the product offering into health, into security, and different other products that have been very well accepted. So if you see the number of policies that we've sold during the last in...
If you compare the first six months of this year, we've sold, like, 64 million policies in the first semester, and this is something that has boosted the fee income. Of course, we need to first continue to diversify the product offering and grow the customer base, not only with the group companies that we work for, but also Aterna has now the strategy to serve other channels, not only Gentera's companies, but other institutions to distribute these products that have been very well accepted. So having said that, we are very enthusiastic, because as you said, it's zero risk, it's 100% fee-driven, well-accepted revenue by the end user, and we will continue to grow fast, as fast as possible in this line item in the years to come.
Most clear, Mario. Now, my second question is on ROEs, right? Because if you see through revenues are growing faster and checking here, it's kind of double in the past years. So do we not expect high ROEs for Gentera? Because you're just making more money on a very, very high ROE kind of product, right on the fee side.
Well, that's the question. No, we—as we have said previously, the plan that we have for 2027, which includes all the strategic initiatives that Enrique and Patricio have explained in past calls, imply positive jaws, growing positive jaws that will hopefully result in higher ROEs. And we have said our long-term objective would be to achieve around ROE around 23%, and if we have higher profitability than that, we would love to bring prices down to our clients to share that economic creation with them. So yes, we are seeing profitability improvements going forward.
Oh, okay. Thank you very much, Mario.
You're welcome.
Thank you. Next question comes from the line of Pablo Ordóñez with GBM. Please go ahead.
Yes. Hi, good morning, Enrique, Mario, Patricio. My question is regarding the growth outlook and the dynamics for the loan portfolio in Mexico by methodology. The individual methodology has been growing close to 50% on an annual basis, and the group methodology is close to 20%. So can you give us some color more for the medium term on what should we expect in terms of growth by methodology? And also, what is driving your appetite to grow in this segment? Is it also related to the opportunity to take market share from other microfinance companies, or is it a different segment in which you compete with commercial banks? Thanks.
In terms of growth, I'll jump first to individual lending. The rationale of going to Peru was to import the individual lending methodology that has been working very nicely in Peru for many, many years. So as we learned from the Peruvian experience, we set a very aggressive target for growth for the Mexican operation. So today we are serving, like, 240,000 customers, more established customers than the group lending customers that we serve with group lending methodologies. But the reality is that 240,000 micro entrepreneurs for individual lending, it's a very, very small figure for the Mexican context. So we really think that we can grow still fast enough for the coming years.
We see that there's a market opportunity that is on tap, not only by large banks or by microfinance institutions. We are today the number one player in individual lending, and we will continue to tap into this underserved market for the coming years. So we do see in individual still growth momentum that we won't stop, as long as we feel comfortable with the credit profile of our portfolio. And in the group lending methodologies, of course, we've been gaining share from weaker customers. We, in the last 12 months, moved our market share from 58% - 68% in 12 months, so we will continue to gain share in the group lending landscape. And we think that there's an opportunity to expand still geographically to other regions where we are not present to deploy this product.
So for both products, we still see an opportunity to grow, and this is why, as, as I was saying before, we expect to grow a double-digit, the portfolio for the coming year.
Thanks. That's very helpful. And a quick follow-up on the economics. What will be the impact on margins? Because you mentioned that, if I'm correct, that the active rate on the individual lending is close to 30%. How does this compares to the group methodology, and what would be the impact for margins?
How you should look or think about, you make up the lower margins for individual with lower costs. So what you should look is the ROE of the bank, because it will, you have lower needs for individual, higher volume, but lower costs associated to serving these loans. So net-net, what we will be focused on will be to maintain and grow the ROE for the bank going forward.
Okay, thanks a lot.
Thank you. With no questions in queue, the question- and- answer session concludes. I will now hand the call over to the management of the company for final remarks.
Well, thank you, operator, and thank you all for being in this call. To close our call, let me point out maybe the following three main messages that we would like to leave with you. The first one, we finished a first semester with expected growth, and we are definitely on track to meet our guidance for this year. So we are pretty confident, and we are excited for what we have ahead during the rest of the year. The second message is that, we are addressing cost of risk and provisions in Peru, and it has been our priority in the recent months, as Patricio said, and we expect to improve this cost of risk along the second half of the year based on the actions we have already in place and we have explained.
And the third idea is that, as you have seen, and Patricio went here deeply, our digital transformation initiatives are having good progress, and they are the foundation for good results this year and further on. So at the end, our top priority will always be to provide our customers a better experience and to continue working for a more efficient operation. Having this, having this as our priority is the best guarantee that Gentera will continue to grow strong for the long run. So thank you for keeping on following on us, and we hope to hear from you in our next quarterly report. Thank you, and have a nice day.
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